Spreads of the securities held within our portfolio tightened in December. We saw government bond rates rise slightly in December, as concerns linked to Central Bank tightening and inflation remained. This occurred despite the increase in Covid-19 cases globally, as well as the development of the Omicron variant.
Despite all these concerns, we have a positive outlook going into 2022. We are well positioned within the current environment of potentially rising interest rates. The fund performed strongly in 2021, despite the fact the German 10-year Bund moved up approximately 80 bps. This is in line with what we have seen in previous periods of rising interest rates.
Moreover, financials have demonstrated their strength and resilience within the last two years. For instance, European banks have the highest amounts of capital ever recorded. This was once again demonstrated by the strong results of UK banks during the latest Bank of England stress tests in December.
Valuations also are at attractive levels, with spreads of close to 340 bps. To put this into context, this is more than 4 times the spread that one was capturing on Tier 1 securities of HSBC issued before the global financial crisis in 2007. This is despite the fact that financials have become much stronger from a credit quality standpoint.

In conclusion, we believe we are very well positioned for 2022. Credit quality of financials remains extremely strong, if not the strongest historical levels. Moreover, our strategy has very low sensitivity to interest rates, as demonstrated in 2021, as well as previous periods of rising interest rates. This combined with the high income and attractive valuations means we are very well positioned for the year to come.

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